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Michigan sees best third quarter with 15 VC deals worth $28.6 million

Michigan posted its best third quarter for the number of venture capital deals – and its second-best quarter ever – in three months ended in September.

Fifteen deals worth $28.6 million were completed in the third quarter of 2013, according to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report based on data from Thomson Reuters. The last time the state did more deals was in the first quarter of 2000, when 17 investments worth $143 million were made.

The nearly $30 million in deals done this quarter is Michigan's best turnout this year, but it still pales compared to 2012, when the state posted $111.2 million in 13 deals in the third quarter. Overall in 2012, Michigan saw 49 investments worth $238.9 million in 2012; so far in 2013, 37 deals have been completed worth $48.2 million.

Southeast Michigan companies took home 94 percent of the investment, with the remaining 6 percent landing in Grand Rapids and Lansing, according to the report.

"Michigan has been a more robust venture scene for the past couple of years, primarily due to the fact that funds in Michigan have fresh capital to invest," said Jan Garfinkle, managing director of the Ann Arbor-based venture fund Arboretum Ventures LLC. "Additionally, the quality of the companies has been excellent with great management teams, excellent technology, and large markets. Michigan's competitive advantage is the ability to develop successful venture-backed companies at a third the cost of companies outside the Midwest."

"This is still a challenging fundraising environment for a medical device company, so I'm happy to close on the B round," Delphinus CEO William Greenway told Crain's when the round was announced.

His assertion was proved out by the PwC/NVCA MoneyTree Report, which found that overall investments in the life sciences sector (biotechnology and medical devices) is depressed, with only 541 deals reported in 2013, the lowest nine-month total since 2005.

Nationally, venture capitalists invested $7.8 billion in 1,005 deals during the third quarter of 2013, according to the report. That is a 12 percent increase in dollars and a 5 percent increase in deals compared to the second quarter.

The most popular place for VCs to invest was software companies, at $3.6 billion. In fact, the country's largest deal of the quarter was $257.8 million invested in San Francisco-based Uber Software. The company, which has a Detroit presence, allows users to hire — and pay for — taxis and town cars using the Uber app on their smartphones.

"It's an exciting time to be an entrepreneur with a software company," said Mark McCaffrey, global technology partner and software leader at PricewaterhouseCooper U.S. "More venture capital dollars are going into more software deals than we've seen in the past decade."

Software deals totaled $15.4 million in Michigan during the quarter, with Ann Arbor-based ArborMetrix Inc. taking home nearly half of that amount. The company develops software for hospitals so they can calculate the costs and quality of medical procedures. Arboretum Ventures was also involved in this $7 million round.

"With more than half of this quarter's deals coming from early and seed stage deals, there's credible reason to be optimistic about the future of innovation and the vibrancy of the startup ecosystem," John Taylor, head of research at the NVCA, said in a news release.